Little China World
by Joe Gallivan
“It was a tumultuous end to 2015 with the stock market and the GDP coming out lower than expectations,” said Kellie Holloway, Senior International Trade Specialist with the U.S. Commercial Service.
She was speaking last week to Portland Business Alliance members who had come to hear about the importance of trade with China, but also to down a few Lucky Buddha beers and do the two-handed business card swap.
But the bad news was overrated. Holloway continued in the same breath, “But it’s so important to keep that in perspective.
Our trade with China increased 43 per cent in our biggest sector, electronics. Our overall trade increased 13 percent. Things still look really good.”
She said that since only 30 percent of Chinese GDP is tied to the stock market, and only 20 per cent of people are invested in the stock market, such stock market plunges have less impact than they would in a place like the United States.
“Another thought is, size matters. China’s economy is five times larger than it was in 2005. A five percent growth rate in 2007 is the equivalent of 15 percent growth now.”
This is all good news for American companies looking for a mega market.
Apparently there are 50 ghost towns in China, which were planned and built but never populated.
“Is China going to remain the world’s manufacturing center? Yes.”
And urbanization continues apace. More than half of China is now urban and it is expected to be 75 percent by 2020. People are buying more, and China is importing more.
Year of the rock climber
“So what are they buying? Goods and services that are lifestyle-related. Now that they have disposable income there’s hobbies and passions. The outdoor retail segment is going gangbusters. There are festivals of all kinds, rock climbing, kite surfing — things that didn’t exist before.”
She talked about the Alibaba Effect — Chinese people love online shopping. They have specialty ecommerce platforms, and buy everything from organic apples to Mercedes online. They are demanding cleaner environment and are interested in health and natural products from places such as Oregon.
As well as trying to reform the government and kick out corruption, Xi Jinping has a contract with the people to make their people’s lives better, which include a healthier lifestyle.
She says it’s all true about the poor air quality. “Now the government is admitting this by shutting down schools on bad days.”
When she worked at the U.S. Embassy in Beijing, she helped get air quality measuring tools by Met One Instruments of Grants Pass installed in the embassy grounds, where they have been tweeting statistics for years.
China is starting to sounds like Oregon. “Innovation is a key word, in terms of incubators and labs. The buzz 20 years ago was foreign trade zones. Now it’s incubators, and the training of students to be more creative thinkers.”
Someone asked, Why is China not part of TPP? “I don’t know. I think it’s probably good because there are so many battles with China as it is.”
Blueberries to China
Oregon exports were hurt last year by falling prices for agricultural products the west coast trade dispute, which slowed down freight, and then the loss of container business at the Terminal 6 at the Port of Portland.
However, exports from Oregon to China were up last year including agricultural products and computer products. Oregon’s trade in 2015 with China was almost $5 billion ($4.2 billion in 2014) and 58 percent of it is electronics — mainly computer chips. Governor Brown led a trade delegation of 50 people to China in October 2015.
David W. Kohl is the statewide international trade liaison for the Oregon Small Business Development Center Network. For years he has been helping US companies find their business footing in China and avoid cultural gaffes.
After working in Hong Kong, he moved to Beijing in 1999 and lived in a Chinese neighborhood in the Jinsong District, taught some business English then got into cultural intelligence training. For this he worked with multinationals which were trying to bring local Chinese people into their foreign management teams. He would shuttle between two groups, dealing with common problems such as the American boss thinking he was popular but the locals having a different opinion behind his back.
“Things have changed, there’s an increased awareness of the need for cultural intelligence. It’s not the cherry on the top any more, it’s the baseline you need to do business there,” said Kohl a few days after the Skype Live event.
He worked for brands such as Sheraton Hotels, Shell and Dupont. After three years he got his Masters in International Management at Portland State University.
The cultural intelligence work included training security staff at Portland International Airport as the city became an international point of entry, as well as for Intel Capital, Logitech, ESCO, Nike and Columbia Sportswear.
Oregon bureaucracy best in the nation
With the Small Business Development Center Network he works with Tammy Marquez-Oldham to support the National Export Initiative, “to create more local jobs and get money into the local economy. Small businesses have 500 or less employees, which is most companies in Oregon.”
They come to his office wanting to know if they can export to China. His team puts them through an export readiness assessment. He explains that China has a “high-context” business culture, which Americans can underestimate.
“I’ll have an executive say ‘I need a personal relationship with my counterpart.’ It’s an action item, they’ll do it in the taxi from the airport, ask about their family, wife, kids, school, then it’s over. That’s made it difficult for the relationship to develop because you’ve brought it up and put it to bed. It’s not ‘Just give me your stats and then we have a relationship.’”
Kohl says Oregon’s 19 SBDCs have a good reputation, such that other states want to use them as a model.
Making sense of Chinese numbers
At Ferguson Wellman Capital Management in Portland they look for economic indicators that are more reliable than those released by the central government of China. Ralph Cole, executive vice president of research, says utility and energy use are good guides to what’s going on.
“Companies with boots on the ground give real numbers. For industrial names and consumer names, like Starbucks, we believe the company data,” he told the Business Tribune.
The strong Chinese currency has led to some capital flight in the last four years. “If I was John Deere or Caterpillar, I’d be worried.” However he looks at Apple’s recent slowdown in China in context. “The quarter before they had 100 percent growth.”
The more significant slowdown is in the industrial and commodities side.
“When half of your economy is fixed investment (China’s central government paying to build infrastructure) then if you’re losing jobs, how confident is the consumer going to be?”
He expects the Chinese economy will grow at around 3 or 4 percent per year rather than 6 to 8 percent. China’s transition to a consumer and services economy is correct.
Puffy coats for all
“Selling to the middle class is a viable strategy,” he says, noting Nike crossing the billion dollar sales mark and the success of Apple. However, “With a command and control economy, if they decide to build a road they do it, but you can’t make consumer shop. They need jobs and a social safety net.”
Bill Tung is VP of International Distributors & Asia Direct at Columbia Sportswear. He says the firm is riding a wave of interest from Chinese people with disposable income looking for outdoor apparel. Down jackets, gloves and waterproof boots have been particularly popular. Columbia is known as a high-end, technical brand in China.
Columbia Sportswear entered the market with a distributor, Swire, in 2004. This became a majority joint venture in 2014. The aim was to leverage Swire’s experience, which goes back to Hong Kong in the 1880s.
“China is now one of our largest markets outside the US, with 800 points of sale,” says Tung.
Starbucks, Nike, KFC have all found doing business in China is legitimate and safe. “China has very exacting standards of safety and quality, and those standards have been in place for quite some time.”
It’s beginning to look a lot like Portland.
BUSINESS IN CHINA
David W. Kohl’s five questions to ask before doing business in China.
- Why China? Early on, everyone was doing it because it seemed like the thing to do, but some got burned by rushing in and not doing common sense vetting. Some who were normally careful treaded it differently and were ill prepared. Maybe start out with easier markets, such as Canada, which is simpler and has free trade.
- Make sure you vet distributors thoroughly.You meet people at a tradeshow who want to represent you but be careful unless it’s a large export company. Beware of them wanting exclusive rights to your product in China, often they’re not able to handle that large a market. Sometimes they might have an interest in a competing company and will slow you down. Or a manager will take your intellectual property and set up his own company alongside yours and take market share. It’s good to have your own people on the ground.
- Register trademarks. Make sure you register all trademarks, even if you are not doing business in China. A lot of squatters buy up anything that looks promising, and it’s first to file there, not first to use.
- No cost help.We offer no cost help but you still need to spend an appropriate amount of money on appropriate legal representation and a competent customs broker/freight forwarder.
- Top-level commitment.Make sure you have buy-in at the top, that the management is interested in exports and it’s not just the initiative of a salesperson. If you have a business plan, we can help you create an export plan at the SBDC and the Global Trade Center, with realistic costs and time lines.